The WTO: What you need to know and why it matters for the future of global trade

In recent months, President Trump’s lack of support for the World Trade Organisation – as well as a potential fallback to WTO tariffs after Brexit – have raised some serious questions about what the WTO is, why it matters for international trade, and whether its days are numbered. 

Here’s what you need to know: 

What is the World Trade Organisation? 

The World Trade Organisation (WTO) was established in 1995 to deal with the global rules of trade between nations. 

Headquartered in Geneva, the WTO is at the core of all trade agreements negotiated globally and is a place for any trade disputes between its 164 member nations to be settled.

Why does it matter? 

The WTO exists to reduce obstacles to international trade. By levelling the playing field, it helps trade flow smoothly and stimulates economic growth around the world. 

The regulations it puts in place have a direct impact on businesses and their international trade capabilities. Synchronising trade rules across nations makes importing and exporting smoother and more cost-efficient, and by creating a flat line of duty rates across countries, the risk of trade discrimination is reduced. 

As the centre-post of global trade, the WTO is also key to resolving disputes. By renegotiating rules – and penalising those who break them – it creates a safer trading area for all, and settles disagreements that could otherwise spiral into serious conflicts.  

Is the WTO’s future at risk? 

Despite its obvious benefits, recent headlines suggest that the WTO may be heading towards crisis. 
For months, President Trump has garnered attention for his ongoing trade disputes, most notably with China, which recently culminated in a threat to pull the US out of the WTO completely if the organisation doesn’t “shape up.”

Trump’s administration has backed up the threat, going around the WTO to impose import tariffs on steel and aluminium. The US has also vetoed new appointments nominated to the WTO’s appellate body of key decision makers. Without these crucial seats filled, the WTO could quickly become unable to hear cases and resolve disputes.

What other threats exist?  

The ongoing trade war between the US and China is adding yet more pressure on the WTO. Both sides have put huge tariffs in place, which have so far have reduced trade between the nations by 11%. It should be the responsibility of the WTO to contain such trade disputes, but at this point, it seems it is as much of a powerless bystander as everyone else.  

And it’s not just the US that is calling for reform. Other nations have been airing concerns that the WTO is failing to reach new agreements or hold nations to account. For example, some have challenged China’s inclusion in the WTO since, as a non-market economy, it represents exactly the kind of state involvement in market competition that the WTO should be working to iron out. 

The EU, meanwhile, is already discussing potential reforms to the WTO in an effort to pacify US concerns. It remains a waiting game as to whether the talks will produce results.  

Planning for the future 

As with so many global institutions in today’s changing geopolitical climate, the WTO has an uncertain future. Whatever happens, the impact on global trade – and by extension, the currency market – could be significant. 

Don’t hesitate to contact OFX to discuss how you can protect your business from any currency volatility arising from the WTO’s uncertain future and its impact on global trade.

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